The euro-zone is back in deflation just over five years since the end of the last period of falling prices seen in 2009. But unlike that last bout, which lasted just five months, deflation looks set to last longer this time. Unless oil prices rebound, energy effects will remain negative for most of this year. And with demand still weak, spare capacity abundant and inflation expectations falling, core price pressures look set to weaken further too. These forces are likely to offset any inflationary impulse from the lower euro, keeping inflation in negative territory for most of 2015. And there is a clear risk of an even more prolonged and damaging bout of deflation.
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